South Dakota LLC Taxes

How Is an LLC Taxed in South Dakota?

Taxation in South Dakota isn’t applied in the same way to all LLCs – instead, it varies depending on a number of factors, such as an LLC’s nature, locality, and tax election.

While LLCs typically benefit from pass-through taxation by default, they can elect to be taxed as one of the following:

• C Corporations: The LLC is treated as a separate entity to its owners. South Dakota does not have corporate income tax; however, LLCs may still be subject to one or more local- or state-level business taxes. 
• S Corporations: In return for paying owners a “reasonable salary,” the LLC’s remaining profits are distributed among members without a need to pay self-employment tax or FICA taxes.

The following sections go into the various tax responsibilities of your LLC at local, state, and federal levels in South Dakota to help you ensure your LLC navigates them effectively.

South Dakota Local Taxes

The tax regulations at the local level differ from one municipality to another in South Dakota, including specific taxes that apply to certain businesses and activities. 

Below, we have provided a detailed outline of these local taxes that might be applicable to your LLC.

Municipal Sales and Use Taxes

As an LLC owner in South Dakota, you may be required to collect municipal sales or use tax and remit it to the Department of Revenue. This applies to all qualifying businesses, including those owned by tribal members. 

If the purchaser receives or uses the product or service in a municipality that imposes a sales tax or use tax, the municipal sales or use tax rate of 2% applies. It’s important to note that municipalities can only impose or amend their tax rates on January 1 and July 1. 

Keep in mind that certain items are exempt from the municipal sales tax, such as prescription medications, farm machinery, advertising services, replacement parts, and livestock.

Note: To keep track of the applicable tax rates in each city where you do business, you can use the Sales Tax Rate Lookup tool. The Department of Revenue also includes tax fact pages which explain how sales and use tax applies to each specific industry.

Sales and Use Tax on Indian Country

There are currently five Indian tribes in South Dakota that have tax collection agreements with the state. These agreements cover various taxes such as sales, use, tourism, and contractor excise taxes, among others. 

The five tribes with these agreements are the Cheyenne River Sioux Tribe, Crow Creek Sioux Tribe, Oglala Sioux Tribe, Rosebud Sioux Tribe, and Standing Rock Sioux Tribe. 

If you’re conducting business in any of these tribes, it’s important to note that they are considered a “Special Jurisdiction.” This means that all taxes due in each Special Jurisdiction must be reported on the state tax return using the code assigned to that jurisdiction. Once you have reported and remitted the taxes, the amount is then distributed between the state and tribal governments based on the agreements.

Note: To obtain details regarding tax rates and tax reporting for Special Jurisdictions and Indian countries that are not part of the agreements, please refer to the Tribal Tax Fact.

Municipal Gross Receipts Tax

If your LLC sells certain items, such as alcoholic beverages, food, lodging accommodations, and admissions to places of amusement, athletic, and cultural events, you may be subject to the municipal gross receipts tax (MGRT) in addition to the municipal sales tax. 

It’s worth noting that if your gross revenue from sales in South Dakota exceeds $100,000, your business will need to report and pay both state and municipal taxes to the Department of Revenue. 

Just remember that the MGRT is collected and remitted by businesses licensed in South Dakota using the same tax return that they use for state sales and use taxes.

Note: For more information on municipal taxes, check out the Municipal Tax Guide provided by the South Dakota Department of Revenue.

Property Taxes

Property taxes in South Dakota are imposed on a local level, where each county, city, school district, and other unit of local government has its own authority to assess and collect these taxes from the properties within its boundaries.

If your LLC owns a property in South Dakota, your tax will be calculated as follows:

1. The property is assessed at its market (or full and true) value, which is the amount it would sell for if sold on the open market.
2. The property is equalized to 85% of its full and true value. For example, if a home has a full and true value of $230,000, its taxable value would be $195,500.
3. The tax rate is divided by the taxable value of all properties within a unit of government into the amount of its budget that is unfunded from other sources. For example, if a city has a taxable value of $10 million and a budget request of $100,000, its tax rate would be $10 per thousand.
4. The tax on each property is calculated by multiplying its taxable value by its tax rate. For example, if a home with a taxable value of $200,000 has a tax rate of $10 per thousand, its tax would be $2,000.

If you have property tax-related questions, you can contact the following local authorities for more information:

• Director of Equalization: Directors of equalization are responsible for discovering, listing, and valuing all taxable property in South Dakota as well as ensuring that the property taxes are assessed in an equal and uniform manner across the county. 
• County Auditor: The auditors calculate the tax rates for all eligible tax-collecting entities and make sure the taxes collected follow state law. They also serve as the Clerks of the County Commission to keep and protect the records of the Commission’s actions. 
• County Treasurer: The county treasurers collect property taxes, which involves billing property owners, processing payments, and keeping accurate records of all transactions.

Note: To help you find property tax information and rates within a specific jurisdiction, visit the South Dakota Property Tax Portal, which also includes a Property Tax Explainer Tool. 

South Dakota State Taxes

Every state has its own regulations and rules that dictate how it taxes individuals and businesses. Below is a list of the most relevant state-level taxes for LLCs in South Dakota.

State Sales and Use Tax

South Dakota requires any business with a physical presence in the state to be licensed for sales tax collection, including LLCs. Sales tax is imposed on what you sell, purchase, or rent, whether it’s physical or digital, while use tax is imposed on the products that you use or consume (including products delivered electronically) that you purchase without paying sales tax.

The state sales and use tax rate in South Dakota is 4.2% that is combined with up to a maximum of 2% for the municipal sales tax and 1% for the municipal gross receipts tax. 

Additionally, you will need to register for a South Dakota Sales Tax License (also called a sales tax permit) from the South Dakota Department of Revenue.

Note: If you are a remote seller or a marketplace provider who meets certain revenue thresholds, you must also obtain a South Dakota sales tax license and pay applicable sales tax. You can find more information on the Remote Seller Bulletin or the Marketplace Tax Fact.

Tourism Tax

If you are providing lodging or amusement services for tourism purposes, you may be subject to an additional tax known as tourism tax or seasonal tax. This tax amounts to 1.5% of the gross receipts of your business and applies to the following items, except for visitor-intensive businesses, all year round: 

• Hotels and Lodging Establishments
• Campgrounds 
• Motor Vehicle Rentals
• Recreational Equipment Rentals
• Recreational Services
• Spectator Events
• Visitor Attractions 

However, if your business primarily earns money from visitors, such as casinos, amusement parks, zoos, museums, etc., then you will be subject to the tourism tax only during the months of June, July, August, and September. 

When reporting the tourism tax, you should include it in your sales tax return with a separate code, just like you would report your municipal taxes. The code for tourism is 700-1, with some exceptions for special jurisdictions.

Note: To find out more about South Dakota’s tourism tax, read the Department of Revenue’s Tourism Tax Manual. 

State Excise Taxes

There are several types of state excise taxes in South Dakota, which are taxes imposed on specific goods or services. Some of the most common ones are:

• Contractor’s Excise Tax: The tax rate of 2% is imposed on the gross receipts of all prime contractors and subcontractors engaged in construction services or realty improvement projects in South Dakota. This applies to two types of construction projects: Qualified Utility Projects and Non-Qualified Utility Projects. 
• Bank Franchise Tax: The tax rate is 0.5% imposed on the net income of every financial institution regularly engaged in business in South Dakota, and it applies to both public and private entities.
• Precious Metal and Energy Mineral Severance Taxes, and Conservation Tax: The tax rate varies depending on the type of mineral, but it ranges from 2% to 10%, and is imposed on the gross value of ores and energy minerals severed from the soil or water in South Dakota
• Coin-Operated Laundromat License Fees: The annual $20 fee (per machine) is imposed on the owners of coin-operated laundromats in South Dakota.
• Amusement Machines Tax: The 4.2% tax applies to the gross receipts from any mechanical or electronic amusement device, including pinball machines, jukeboxes, pool tables, arcade games, shooting gallery games, and dart boards. 
• Alcohol Taxes: The 4.2% tax applies to the shipment of wine based on the customer’s shipping address, including the product cost and shipping charges. 
• Cigarette and Tobacco Excise Taxes: The tax is $1.53 per cigarette pack of 20, and other tobacco products taxed at 35% of the wholesale price.
• Motor Fuel Excise Taxes: The tax rate varies, where gasoline, diesel, ethanol, and biodiesel all cost $0.20 per gallon, while compressed natural gas (CNG) costs $0.10 per gasoline gallon equivalent (GGE), and liquefied natural gas (LNG) and liquefied petroleum gas (LPG) both cost $0.20 per GGE.

Note: Both the state and federal governments can impose excise taxes – the differences lie in the rates, collection (state or federal agency), and allocation of said taxes. 

Federal Taxes

Regardless of where your business is located, if you run an LLC in the US, there are a number of federal taxes you’ll need to pay. Below are some of the main types your LLC may be required to pay for federal tax purposes:

Income Tax

By default, the Internal Revenue Service (IRS) will not treat single and multi-member LLCs as separate entities from you for tax purposes. What this means is that you’ll need to report your share of your LLC’s profits on your individual tax returns and pay federal income tax on them at the personal rate of your tax bracket.

Having said that, keep in mind that LLCs can also elect to be taxed as C corps or S corps, which changes how these taxes are levied in different ways.

Self-Employment Tax

In addition to income tax, members of single- and multi-member LLCs will need to pay federal self-employment taxes on the share of the business’s profits that they report on their personal tax return at the end of the year.

This tax is levied at a flat rate of 15.3% against businesses with net earnings that exceed $400, though it is applied slightly differently to LLCs that have elected to be taxed as S corps or C corps.

Employer Taxes

If your LLC hires any employees, it will need to withhold a portion of their salaries to cover various types of taxes on your employees’ behalf – including Social Security, Medicare (FICA), and payroll taxes.

Furthermore, the members of any LLCs that have elected to be taxed as an S corp will be required to pay employment taxes on their salaries. However, in return for this, the remainder of the business’s profit after these salaries have been distributed will be safe from both self-employment and FICA taxes.

Excise Tax

If your LLC engages in certain types of business (such as the sale of alcohol and tobacco or operating a heavy highway vehicle, among others), it may need to pay federal excise taxes in order to do so legally. Each excise tax comes with its own set of rules, rates, and filing obligations you’ll need to be aware of.

Understanding and fulfilling these federal tax obligations is crucial for keeping your LLC compliant and avoiding unnecessary financial penalties and/or fines.

How to File LLC Taxes in South Dakota

Below, we’ve outlined the general process an LLC in South Dakota will need to follow in order to file their tax return correctly. Note that the specificities of each step will vary slightly depending on how your LLC is organized and the specific locality it’s based in. 

Step 1: Gather Your Documentation

To ensure accurate tax filing, thorough record-keeping is essential. Begin by collecting your personal information, including: 

• You and your partner’s Social Security number, date of birth, and residential address
• The previous year’s tax returns
• Your LLC’s Federal Tax Identification Number or Employer Identification Number (EIN)

Then, you’ll need to gather all documentation related to your business’s income, such as:

• Invoices you’ve issued
• Sales transaction logs
• Electronic payment reports from services like PayPal or Stripe

Lastly, assemble all records pertaining to your business expenses, which should cover:

• Lease receipts for your business premises
• Bills for utilities
• Records of office supplies purchases
• Documentation of business-related travel
• Payroll records for employees

Note: Depending on how your LLC is organized and its tax election, you may need different information for your tax return. 

Step 2: Find The Right Tax Forms

Once you’ve gathered all necessary documents, the next step is to select the correct tax forms for your LLC based on its organization:

• Single-Member LLCs: The business’s total income and expenses are reported on a Schedule C form, which is attached to the owner’s personal tax return and due by April 15 or the following business day if it lands on a weekend or holiday.
• Multi-Member LLCs: File an information return using Form 1065. Members must fill out a Schedule K-1 showing their individual earnings or losses by March 15 or the next business day.
• C Corporations: File a corporate tax return using Form 1120 by the April 15 deadline or on the next business day if it’s a weekend or holiday.
• S Corporations: Use Form 1120-S for the corporate tax return and distribute Schedule K-1 forms to shareholders for reporting their shares of profits or losses. The deadline for filing taxes using 1120-S is March 15 or the following business day.

Since state and local taxes will have their own individual forms and requirements, we recommend contacting your municipality or hiring an accountant for guidance.

With the appropriate documentation gathered and the correct tax forms for your business entity on hand, you’ll be ready to fill them out and submit them.

Step 3: File Your Taxes

The majority of businesses choose electronic filing for its speed, enhanced security, and reliability compared to paper filing, which can be slower and more prone to errors. Here’s how it works:

• Federal Tax Returns: The IRS provides two electronic services for tax submission: Free File for businesses with an AGI below $72,000 and Free Fillable Forms for those above the threshold.
• State Tax Returns: The South Dakota Department of Revenue provides an online portal called EPath, where you can file and pay your taxes electronically. You can also check out the business tax filing dates to know your return and payment due dates. 
• Local Tax Returns: Local taxes, such as municipal sales and use taxes, are filed through EPath as well. For filing property tax returns, contact your county auditor or treasurer for more details. 

Note: These electronic filing tools are best suited for those who are already confident in handling their LLC taxes as if filling out a paper form. 

For new business owners, we recommend opting for the expertise of a tax professional in order to ensure both accuracy and compliance in your tax filings. 

Recommended: Schedule a free consultation with 1-800Accountant to stay on top of your taxes. 

Keep Your South Dakota LLC Compliant

While LLCs are generally easier to maintain than corporations, there are certain state and local formalities your LLC must satisfy in order to remain compliant. 

South Dakota LLC Annual Report

If your LLC is registered in South Dakota, you need to file an annual report online or by mail with the South Dakota Secretary of State. This report is essential to update or confirm your LLC’s records, including its business address, registered agent, managers, and owners. 

Remember that the filing fee for the report is $65 for both domestic and foreign LLC entities, and it is due by the first day of the second month following your LLC’s anniversary month. 

For example, if your LLC was formed on June 15, 2023, you will need to file the report by August 1 every year. If you fail to submit the report on time, your LLC will incur a $50 late fee and may face administrative dissolution or revocation.

Licensure and Tax Requirements

In South Dakota, almost all businesses are required to obtain various licenses and permits at the local, state, and federal levels. Below, we’ve broken down three of the most common types your LLC may need:

• Sales Tax Licenses: If your LLC sells or leases taxable goods or services in South Dakota, you are required to obtain a sales tax license from the South Dakota Department of Revenue. The process can be completed electronically by filling out the tax license application form. 
• Professional Licenses: If your LLC offers certain professional services, such as accounting, insurance, law, medicine, or real estate, you may need to obtain a professional license from the applicable licensing board in South Dakota. 
• Environmental Permits: If your LLC engages in activities that affect the environment, such as air emissions, water discharge, and waste management, you may need to acquire an environmental permit from the South Dakota Department of Agriculture and Natural Resources (SD DANR). 

Note: Refer to South Dakota’s guide on Licensing and Registering Your Business for a complete list of statewide licenses and permits required for your LLC.